Mines Suppliers

Local businesses on the Copperbelt that commonly refer to themselves as Mines Suppliers have emerged from tough times during the period of low copper prices.

The copper mining industry slowed down in 2008 and many suppliers found themselves discarded as suppliers to the mines as mining activity rapidly contracted in many mining operations, and in some areas such as Luanshya and Mazabuka, the mining operations came to a complete halt.

Dialogue with former mines suppliers at the time, revealed that many local companies had to shut down their business activities and look for other ways of earning a living and keeping family and children in rented houses and at schools. The Copperbelt was glum and the economic mood was one of despair.

A post-mortem of the mines suppliers’ predicament brought up some interesting information that characterised the sector.

It is quite evident that many mines suppliers thrived on the prolific spending by the mining companies in respect to transport, raw material, spare parts, machinery, out sourced maintenance, and several other services. This phenomenon generated a lavish life style amongst the mines suppliers such that many companies were relatively reckless in their spending patterns. This was evidenced by the number of luxury vehicles on the Copperbelt, the influx of speed boats, motor cycles, and quad bikes for recreational purposes, and the large number of people travelling for the Copperbelt to South Africa that necessitated as many flights out of Ndola as they were from Lusaka en route to Johannesburg.

Nightclubs, bars, guesthouses, and restaurants enjoyed the patronage of Copperbelt residents who exhibited lavish expenditure patterns on drinks and food as a result of the cash flow emanating from the mines suppliers.

The mines suppliers seldom put money aside in savings to cater for rainy days because they believed that the mining industry would always be there to offer business each day.

Very few mines suppliers considered diversification to spread their business risks. The thinking was that any other business was either too complicated or the profits margins were too small. Again, mines suppliers saw the mining sector as an all weather industry that would always be there for them.

Most mine suppliers invested in nonperforming assets that also depreciated in value very rapidly. State of the art music systems, luxury motor vehicles, and cutting edge ICT products were the main targets for excess cash in the hands of mines suppliers. The conversion rates for these assets into cash would seldom be better than 50% value.

Within six months into the mining sector slump Zambia experienced mines suppliers going bust and many supplies having to survive on borrowed resources. Vehicles were being sold at give away prices, children were being relocated from upmarket schools into Government schools, and recreation was being relegated to Shebeens.

In 2009, the mining industry has taken a turn for the better and copper prices have more than doubled on the world metal markets.

The mining companies have become somewhat cautious in their spending patterns and have in some cases, engaged consultants to perform price verifications for commodities and supplies quoted by mining suppliers. This has had the impact of reducing the profits made by mines suppliers even though the mining companies are expanding at unprecedented proportions.

Furthermore, many mining companies are demanding extended payment plans for goods supplied by the mines suppliers thereby compelling the suppliers to find outside capital to finance the imports. The income becomes more irregular and is disbursed in tranches, and the cost of money becomes dependent on the options offered by the banking sector.

Currently, mines suppliers are back in business and are challenged to rethink their futures. One hopes that the ‘ego patting’ exercise will not kick in whereby mines suppliers want to prove to the Copperbelt that they are in top form by recklessly spending on trivial luxuries.

The experiences of 2008 should be motivation to re-strategize such that the profits that are realised from this new copper boom are usefully invested in productive activities that will support the mines suppliers in times of difficulties.

It will be good to take a leaf from the employees on the Copperbelt that today will focus on how to make their companies more profitable and sustainable, than to dwell on yearly salary increases that are not performance related.

It is said that ‘It is forgivable to make a mistake once, but to repeat the same mistake signifies incompetence’. The mines suppliers are now being put to the test and the game is one of ‘do or die’.

Published 6 October 2009